Debt Sweat_ Printing Money and Its Price_NYT_12-28-08

Debt Sweat_ Printing Money and Its Price_NYT_12-28-08 -...

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Debt Sweat Printing Money – and Its Price December 28, 2008 - NYTimes.com By PETER S. GOODMAN Borrowing and spending beyond ordinary limits largely explains how Americans got into such economic trouble. For decades, businesses and consumers feasted relentlessly, as if gravity, arithmetic and the tyranny of debt had been defanged by financial engineering. Armed with credit cards and belief in a bountiful future, Americans brought home ceaseless volumes of iPods and cashmere sweaters, and never mind their declining incomes and winnowing savings. Banks lent staggering sums of money to homeowners with dubious credit, convinced that real estate prices could only go up. Government spent as it saw fit, secure that foreigners could always be counted on to finance American debt. So it may seem perverse that in this new era of reckoning — with consumers finally tapped out, government coffers lean and banks paralyzed by fear — many economists have concluded that the appropriate medicine is a fresh dose of the very course that delivered the disarray: Spend without limit. Print money today, fret about the consequences tomorrow. Otherwise, invite a loss of jobs and business failures that could cripple the nation for years. Such thinking carries the moment as President-elect Barack Obama puts together plans to spend more than $700 billion on projects like building roads and classrooms to put people back to work. It is the philosophy behind the Federal Reserve’s decision to drop interest rates near zero — meaning that banks can essentially borrow money for free — while lending directly to
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financial institutions. This is the mentality that has propelled the Treasury to promise up to $950 billion to aid Wall Street, Detroit and perhaps other recipients. But where does all this money come from? And how can a country that got itself in peril by borrowing and spending without limit now borrow and spend its way back to safety? In the case of the Fed, the money comes from its authority to print dollars from thin air. Since
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This note was uploaded on 03/02/2010 for the course BUAD 350 taught by Professor Safarzadeh during the Spring '07 term at USC.

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Debt Sweat_ Printing Money and Its Price_NYT_12-28-08 -...

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